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Piracy: A Growing Global Menace (Brillante Virtuoso Attack) - Guest Post

Brillante Virtuoso (giorgi112 on VesselTracker)
Guest post by OilPrice.com

Piracy: A Growing Global Menace

Over the last few years, thanks largely to Hollywood's "pirates of the Caribbean" franchise, maritime buccaneers have acquired a highly romantic image.

The reality of modern piracy is far removed from the images peddled by Tinseltown. In the most recent nautical attack, Somali pirates on 6 July attacked the 900-foot Brillante Virtuoso, which was carrying over 141,000 tons of fuel oil from Ukraine to Qingdao, China, 20 miles off the Yemeni port of Aden. The vessel's 26 crew members abandoned ship after the attackers fired an RPG round into their sleeping quarters.

According to ship manager Central Mare Inc., the vessel and its cargo were recovered, despite the fact that the rocket-propelled grenade started a fire on board.

While piracy is a worldwide annoyance, its epicenter is now the failed nation state of Somalia, where brazen hijacking of vessels in the Indian Ocean as far away as the Seychelles have in the past decade netted the maritime miscreants billions of dollars.
Though little noticed, tankers have been targets of opportunity for both pirates and terrorists for some time.

While media attention has focused on Somalia, the problem is global. On 16 January 1999 the 131,654 DWT-ton French-flag tanker Chaumont was attacked by pirates while transiting the Malacca Straits' Phillip Channel in Indonesian waters near Singapore. The attackers tied up the crew and the fully loaded tanker sailed at full speed through one of the world's busiest shipping lanes for 70 minutes without anyone at the helm.

Turkmen Gas Finally Gets Washington's Attention - A Little too Late (Guest Post)

Img source: Photobucket
Guest post by OilPrice.com

Turkmen Gas Finally Gets Washington's Attention - A Little too Late

One of Washington's key policy tenets since the 1991 collapse of Communism has been to pry out from under Moscow's control as much of the energy assets of the post-Soviet space as possible.

Nowhere has this policy been more evident than in the Caspian basin and the energy riches of the new post-Soviet states of Azerbaijan, Kazakhstan and Turkmenistan. To the north lies Russia, with whom Washington jostles for these assets while Iran rings the Caspian's southern shore, a rogue "axis of evil" member state that Washington has been punishing with sanctions on its energy sector since well before the Evil Empire collapsed.

Now, in a stunning example of naïve hope over geopolitical and economic reality Washington is wooing Turkmenistan, hoping to get a slice of the pie of the world's fourth or fifth-largest natural gas deposits.

What caused the drooling in Beltwayistan was the release in May of a report by the respected British audit firm Gaffney, Cline and Associates on Turkmenistan's gas reserves. The report concluded that the South Yolotan natural gas superfield, discovered in 2006, contains reserves of more than 20 trillion cubic meters of natural gas, enough to satisfy European demand for more than 50 years and making it the second largest gas field ever found. It should be noted here that when in 2006, following the field's discovery, Turkmenistan's megalomania cal ruler, Saparmurat "Turkmenbashi" Niyazov claimed that the discovery boosted the country's reserves up to 24 trillion cubic meters of natural gas, his claims were taken as mere braggadocio, with BP calculating them at slightly more than 1/10th that amount. A similar thing happened two years later, when Gaffney, Cline and Associates first audited South Yolotan, and their findings were initially ridiculed as overstated.

Portuguese Bond Yields, CDS, Bund Spread Make New Highs On Junk Rating [UPDATE]

Portuguese 2Y Note Yield Spikes 21% to 15.66
via Bloomberg.com
Continued from my previous post a few hours ago: Moody's Downgrades Portugal to Ba2 (Junk); Yields, Spreads, CDS Not At New Highs (Yet). Well, it happened. Portuguese government bond yields, 5Y CDSs (credit default swaps) and the 10Y Portuguese - German bund spread made new highs this morning after Moody's downgraded Portugal to junk. EUR/USD is getting killed (1.43165 -0.98%).

Portuguese 2-year Yield = 15.64% (closed at 14.63% on 6/27)
Portuguese 5-year Yield = 15.02% (closed at 14.15% on 6/27)
Portuguese 10-year Yield = 12.43% (closed at 11.68% on 6/27)
Portuguese 5-year CDS = 916 bps (closed at 841 on 6/27)
10-year Portuguese-German Bund spread = 9.46% (closed at 8.79% on 6/27)

Bruce Berkowitz On St. Joe's Investigation, Says Buying Back Shares If Price Moves Lower

Bruce Berkowitz (Fairholme Fund)
Bruce Berkowitz, manager of the Fairholme Fund (FAIRX), spoke with Bloomberg's Eric Schatzker yesterday on St. Joe Co.'s SEC filing that named him and Fairholme in a formal investigation. View the SEC filing on my previous post. He said "there is not a lot new here, except for I was named and Fairholme was named in the discussion, strictly in regards to our 13D position.” Berkowitz said he wants to buy more shares if the price moves lower. His fund already owns 30% of the company. I embedded the Bloomberg video after the jump. Below are a few quotes from the interview.
"It was my decision as the Chairman of St. Joe to put that 8K out, because we have a buyback program in place. We have a desire for the shareholders to benefit. And if the stock is going to be pushed down for whatever reason, by whatever articles that have been out there for the past three years, I want the company to preserve its ability to buy back shares on the open market… To preserve that ability, the public must know everything and the shareholders must know everything." 
$JOE symmetrical triangle! - FreeStockCharts
"The main reason again is, is for whatever reason the price of St. Joe goes down, I want St. Joe to have the ability to buy back shares for the benefit of our shareholders."
By the way, JOE put options were active yesterday in pretty decent size. Someone might be protecting downside risk after this. Or is Berkowitz selling puts?

3065 December $15 puts traded with 398 open (hat tip @optionsizzle); 1529 September $16 puts traded with 187 open; 468 September $15 puts traded with 216 open; 1746 July $19 puts traded with 919 open; 689 July $18 puts traded with 246 open, and 327 July $17 puts traded with 31 open. I uploaded the July, September and December JOE Option chains on Flickr (via Google Finance). The chart above shows that JOE is trading in a multi-year symmetrical triangle and getting closer to judgment day. Click the chart for a larger view.

EUR/USD, EUR/CHF Chart Watch 7/6/2011 (Euro, Dollar, Swiss Franc)

Below are EUR/USD and EUR/CHF short and long term symmetrical triangles, descending channels and support levels to watch (charts courtesy of freestockcharts.com). In my opinion, 1.43 (or 1.42816 is the 11/2010 blow off top) is a very important support level to hold. If it busts through that level, EUR/USD could test the first and second symmetrical triangle support levels. If you look at the long term chart though, you will see that EUR/USD is still in a rising trend. Watch out for interventions by central banks like China. EUR/CHF is in a nasty downtrend and 1.18 is the recent low. See more charts after the jump (click for larger view).



Moody's Downgrades Portugal to Ba2 (Junk); Yields, Spreads, CDS Not At New Highs (Yet)

Portugal 5Y Note Yield (Bloomberg)
Moody's downgraded Portugal's credit rating to Ba2 (junk) and had a negative outlook. It seems like Portuguese government bond yields and credit default swaps were already pricing this in (*Update: never mind, now they are pricing in the downgrade. Rates made new highs this morning (2Y yield +29% at 16.74). The Moody's report was released after the 7/5 close. See updates here). According to quotes on Bloomberg.com today, the Portuguese 5Y CDS closed at 775 bps, down from 841 bps on 6/27; Portuguese 10Y Note Yield closed at 11.02%, down from 11.68% on 6/27; Portuguese 5Y Note Yield closed at 13.16%, down from 14.15% on 6/27; the 2Y Yield closed at 12.94%, down from 14.63% on 6/27; and the 10Y Portuguese-German Bund spread closed at 8.01, down from 8.79 on 6/27. I couldn't find the 5Y spread on Bloomberg.com. I'm assuming if there is near-term default risk, like Greece last week, these rates will move even higher. No? Greek 2Y notes yield 26%.

EUR/USD and EUR/CHF fell hard last night on perhaps the negative S&P announcement about banks rolling Greek debt, or speculating on more problems in the Eurozone. EUR/USD is currently trading at 1.44515, up from the low of 1.43972 last night. Maybe China stopped buying Euros, or the Dollar is getting a bid based on a second half recovery in the U.S. Also, with QE2 over, do Treasury yields and asset prices move higher or lower. And what happens with the debt ceiling? All of these reactions will affect Dollar.
Lagos, Portugal via Flickr

So what happens next. Do all of these countries get bailed out by the ECB, IMF and EU with steep austerity bills? Simon Johnson, who was chief economist at the IMF in 2007 and 2008, and currently a prof at MIT, thinks Italy is the next Domino to fall (Bloomberg View). This article I found at Daily FX warns about Spain and Italy and potential contagion risks ("yet the real danger to the euro is contagion risk to Spain and Italy, and the next steps could decide the euro’s fate over the medium term."). Here is today's Moody's announcement:

Moody's downgrades Portugal to Ba2 with a negative outlook from Baa1

London, 05 July 2011 -- Moody's Investors Service has today downgraded Portugal's long-term government bond ratings to Ba2 from Baa1 and assigned a negative outlook. Concurrently, Moody's has also downgraded the government's short-term debt rating to (P) Not-Prime from (P) Prime-2. Today's rating action concludes the review of Portugal's ratings initiated on 5 April 2011.

Daily Technical Report By MIG Bank (July 5, 2011) - EUR/USD, EUR/CHF, GBP/USD, USD/JPY, Gold, Silver...

From now on I will be embedding technical research reports courtesy of MIG Bank on my blog. View the embedded PDF file after the jump. This report includes EUR/USD, GBP/USD, USD/JPY, USD/CHF, USD/CAD, AUD/USD, GBP/JPY, EUR/JPY, EUR/GBP, EUR/CHF, US Dollar Index, Gold and Silver. Enjoy!

Today's technical analysis report has been supplied by MIG Bank, the first forex broker in Switzerland to become a Swiss bank. Click here to read the full report on their website.
"EUR/USD

EUR/USD (Source: MIG Bank)
Reactionary bounce under pressure into resistance at 1.4550/67.
  • EUR/USD’s reactionary bounce is losing momentum as it comes under pressure into key resistance at 1.4550/67 (a confluence of both the multi-week triangle pattern ceiling and 76.4%/78.6% Fib-08th June price swing).
  • We watch for this area to cap recent bullish gains for a return back into the lower boundary of this critical triangle pattern. Key downside trigger levels remain at 1.4148 (38.2% Fib-Jan 2011 uptrend) and 1.4000 (psychological).
  • A sustained close below 1.4000/1.3970 (Psychological/May swing low), will accelerate this impulsive (wave 3) into 1.3903/1.3895 (50% Fib/200-day MA), thereafter shifting prior upside trend-followers back into 1.3670 (61.8% Fib-Jan 2011 uptrend). Only a sustained close above the ”Trichet high” at 1.4653 and most importantly 1.4711/30 will lead us to re-evaluate.
  • Inversely, the US dollar index still needs to extend its recovery above 76.36 (23rd May high), to confirm a multi-month w-shaped base pattern for an extension into 77.01 and 78.03 (50%/61.8% Fib-Jan 2011 Decline). Further upside scope is also being supported by increased long positions on our COT liquidity, which has been positive for the last 4 weeks."

EUR/USD, EUR/CHF Look Weak, Broke Near-Term Support (Charts, News)

EUR/CHF (Yellow) v. EUR/USD (White)  July 4-5 (click to view) 
Courtesy FreeStockCharts.com
The Euro is making major moves overnight. Happy belated Independence Day to my U.S. readers. EUR/USD (Euro/U.S. Dollar) broke the July 4 floor and actually just made a new low. EUR/CHF (Euro/Swiss Franc) broke through the floor as well and is testing immediate support as I write. During the past two weeks I charted out a major EUR/USD descending channel to watch, and it looks like it failed technically at the upper bound of the channel (resistance). Interesting news I found:

ECB Will Continue to Accept Greek Debt (Financial Times)
"The European Central Bank will continue to accept Greek debt as collateral for loans unless all the major credit rating agencies it uses declare it to be in default, said a senior finance official"... 
Greek fiscal survival vital for euro zone: FinMin (Reuters)

FOREX-Euro backs off 1-month high on dollar short squeeze (Reuters)
* Short squeeze in the dollar pulls euro off 1-mth highs
* Expected rate hike by ECB to keep euro dips shallow
S&P Selective-Default Risk for Greece 'Surmountable,' HSBC Says (SF Gate/Bloomberg)

Spain next candidate to request major aid package, say London bookies, Italy next (Merco Press)

Ratings agencies playing hardball on Greece: Nowotny (Reuters)

Moody's: $540 Billion In China Local Government Debt Unaccounted For Understates Bank Exposure

qianmen 3.3 (3rd time this road has been rebuilt in the last 2 years)
Road Construction in China via Tricia Wang (Flickr)
Moody's reported today that China's National Audit Office may have understated total local government debt by $540 billion, which could affect banks if these loans go sour. On June 27, China's NAO released a report that said $1.3 trillion of total local government debt outstanding ($1.7 trillion) was funded by banks, but China's Central Bank said there was $2.2 trillion in local government debt outstanding. Read more about about the NAO report at NYT. In addition to this hidden $540 billion, this is going on:

"In its report Monday, the national audit office said it had found many irregular activities. For instance, many local governments were using “unreal” or illegal collateral to secure the loans, the report said, and some of the money they borrowed was funneled into the stock and property markets. At other times, the auditor said, the local governments were “overestimating the value of the collateral” — which was often tied to land values." (NYT, 6/27/2011)"

If all else fails and there's a hard landing in China (as Soros says), the People's Bank of China will just print more renminbi right? Marc Faber thinks so. Here is today's announcement by Moody's Investors Service (7/4/2011):

Beijing, July 05, 2011 -- Moody's Investors Service says that the potential scale of the problem loans at Chinese banks may be closer to its stress case than its base case, according to an assessment that the rating agency conducted following the release of new data by China's National Audit Office (NAO).

St. Joe Co. 8K Filing Mentions Private Investigation By SEC (JOE)

Source: T2 Partners VIC Slides 
This shouldn't come as a surprise. In an 8K filing on January 10, 2011, St. Joe Co, a homebuilder in Florida, said the SEC was "conducting an informal inquiry" on their land impairment practices (read: SEC Conducts Inquiry Into St. Joe's Land Impairment Practices). A new 8K was filed on July 1, 2011 that said there was a private investigation on a variety of matters for the period beginning January 1, 2007. We'll see what happens with this.

Both David Einhorn (Greenlight Capital) and Whitney Tilson (T2 Partners), who are publicly short the company (unless this has changed), believe there should be large land impairment charges. They think $JOE is worth $7-$12/share based on the value of their timberland holdings. The stock is currently trading at $20.87 and hit a low of $18.31 in June.
"Item 8.01 Other Material Events. 
The Company previously disclosed in January 2011 that the Securities and Exchange Commission (the “SEC”) is conducting an informal inquiry into the Company’s policies and practices concerning impairment of investment in real estate assets. On June 24, 2011, the Company received notice from the SEC that it has issued a related order of private investigation. The order of private investigation covers a variety of matters for the period beginning January 1, 2007 including (a) the antifraud provisions of the Federal securities laws as applicable to the Company and its past and present officers, directors, employees, partners, subsidiaries, and/or affiliates, and/or other persons or entities, (b) compliance by past and present reporting persons or entities who were or are directly or indirectly the beneficial owner of more than 5% of the Company’s common stock (which includes Fairholme Funds, Inc., Fairholme Capital Management L.L.C. and the Company’s current Chairman Bruce R. Berkowitz) with their reporting obligations under Section 13(d) of the Exchange Act, (c) internal controls, (d) books and records, (e) communications with auditors and (f) financial reports. The order designates officers of the SEC to take the testimony of the Company and third parties with respect to any or all of these matters, and the Company is cooperating with the SEC."

S&P: Greek Debt Rollover Proposal Could Result In Selective Default (TEXT, 7/4/2011)

National Bank of Greece via Flickr (Duke of Waltham)
Source: http://www.standardandpoors.com/prot/ratings/articles/en/us/?assetID=1245311278832 (hat tip Guardian.co.uk)

"LONDON (Standard & Poor's) July 4, 2011--On June 13, Standard & Poor's Ratings Services lowered the long-term rating on the Hellenic Republic (Greece) to 'CCC' from 'B'. In part, the downgrade reflected our view of the rising risk that an enhanced official financing package addressing the Greek government's 2011-2014 financing needs could require private sector debt restructuring in a form that we would view as an effective default of its debt obligations under our ratings criteria. In recent weeks, a number of proposals relating to this topic have surfaced, and the particulars in some cases are evidently still in flux. This credit comment looks at the most prominent of the recent proposals, put forward by the Federation Bancaire Francaise (FBF) on June 24, 2011, in the context of our criteria for evaluating distressed debt exchanges and similar debt restructurings (see Related Research below). In brief, it is our view that each of the two financing options described in the FBF proposal would likely amount to a default under our criteria.

The FBF proposal currently envisions French-regulated financial institutions agreeing to either of two options regarding their reinvestment of proceeds from Greek government debt maturing between July 2011 and June 2014. Based on recent public statements by European policy makers and bank executives, we believe the options FBF has put forward on the refinancing of Greece's maturing debt were made at the behest of Greece's eurozone official creditors. We broadly summarize these options below.

Links: Greek Ratings, U.S. Debt Limit, Russian Bank Bailout, China's Landing

Debt Subject To Limit, Public Debt Outstanding (TreasuryDirect.gov)
Treasury: No Change to August 2 Estimate Regarding Exhaustion of U.S. Borrowing Authority (Treasury, 7/1/2011)
“The Treasury Department continues to project that the United States will exhaust its borrowing authority under the debt limit on August 2, 2011. Secretary Geithner urges Congress to avoid the catastrophic economic and market consequences of a default crisis by raising the statutory debt limit in a timely manner.”

Doubtful debt deal done soon (AP, 7/3/2011)
"WASHINGTON -- President Barack Obama and Congress likely will find it difficult, if not impossible, to reach a broad deal to raise the U.S. borrowing limit and slash spending by Aug. 2."

Tensions rise on Capitol Hill as America runs out of money (Guardian, 7/3/2011)
"Mark Zandi, chief economist at Moody's Analytics, said: "Our biggest problem now is the fragile nature of the recovery. Confidence is lacking. If anything goes off track, people freeze." He predicts that if the row continues on into July, financial markets – distracted in recent weeks by the shenanigans in Greece – will start to get more and more unsettled. "If we get to August, things will get a lot worse."

Statement By Eurogroup On 5th Tranche Of Greek Loan ($17 billion)

March 25 - Greece Independence Day
Embed Source: Aster-oid on Flickr
Greece will receive "a $17 billion installment by July 15" to get them through the next few months, according to VOA News. Here is the statement made by Eurozone finance ministers. By the way, the Dow Jones Greece Stock Index is close to testing January 2011 resistance. I will provide a chart update in a new post. Greek stocks rallied along with Greek Government bonds on the austerity news.

"2 July 2011

Statement by the Eurogroup

Ministers welcomed the progress made by the Greek authorities in implementing the policy understandings reached with the European Commission, in liaison with the ECB, and the IMF. In particular, Ministers noted with satisfaction the adoption of key laws on the fiscal strategy and privatisation by the Greek Parliament. Ministers therefore endorsed the Commission's Compliance Report and the signing of the updated Memorandum of Understanding.

The Greek authorities provided a strong commitment to adhere to the agreed fiscal adjustment path and to the growth-enhancing structural reform agenda, which are essential components of our strategy to restore fiscal sustainability and safeguard financial stability. Ministers call on all political parties in Greece to support the programme's main objectives and key policy measures in order to ensure a rigorous and swift implementation.

Charlie Munger's Parody on Wantmore, Tweakmore, Totalscum, Countwrong and Oblivious in Boneheadia; BRK Buys Remaining Wesco Stake

Charlie Munger via Wikipedia
Berkshire Hathaway (BRK) decided to buy the remaining 20% stake in Wesco Financial (WSN), which is currently run by Charlie Munger, the Vice Chairman of Berkshire. Full article at Bloomberg:
"Wesco shareholders voted today at a meeting in Pasadena, California, to approve Berkshire Hathaway Inc. (BRK/A)’s offer to acquire the 20 percent of Wesco it doesn’t already own for about $545 million in cash and stock."

At the final shareholders meeting he dissed bankers, accountants, Alan Greenspan and Lehman's former CEO Dick Fuld. Full article at Bloomberg:
“The bubble in America was caused by some combination of megalomania, insanity and evil in, I would say, investment banking, mortgage banking,” Munger, 87, said today at a conference in Pasadena, California.

There was also a parody released which is a must read. Read it at My Investing Notebook:
"A PARODY DESCRIBING THE CONTRIBUTIONS OF WANTMORE, TWEAKMORE, TOTALSCUM, COUNTWRONG, AND OBLIVIOUS TO THE TRAGIC “GREAT RECESSION” IN BONEHEADIA AND THE THOUGHTS OF SOME PEOPLE RELATING TO THIS DISASTER" ... (LOL)